Mutual Fund Dealer Regulation and Ethical Standards

Flashcards covering Canadian mutual fund dealer regulations, KYC requirements, prohibited practices, AML legislation, and core ethical values.

Relationship Disclosure

Information provided in a standardized document that covers circumstances for temporary holds, KYC term definitions, use of trusted contact persons, and fee descriptions.

New Account Application Form (NAAAF)

A document used to open new accounts and record changes to client personal or Know Your Client (KYC) information.

Frequent Traders

Investors who buy and sell mutual fund units actively, sometimes holding positions for as little as one day, often incurring significant costs for the fund.

Nominee Account

An account registered in the name of a dealer or third-party administrator on behalf of the beneficial owner of the mutual fund.

Client Name Account

An account registered directly in the name of the owner of the account with the mutual fund.

Referral Arrangement

An arrangement where a representative or member firm agrees to provide or receive a referral fee to or from another person or company.

Discretionary Trading

The prohibited practice where a dealing representative determines the timing and/or price of a purchase or sale for a client account.

Quoting a Future Price

An illegal practice where an investor is told they will pay or receive a specific price per unit before the end-of-day NAV is determined at $4\,\text{p.m.}$ Eastern time.

PIPEDA

The Personal Information Protection and Electronic Documents Act, federal legislation that safeguards personal information and regulates its collection, use, and disclosure.

Money Laundering

The criminal offense of accepting cash or assets obtained illegally and making them appear legitimate, consisting of the stages: placement, layering, and integration.

Placement

The first stage of money laundering, involving cash deposits or the purchase of art, gold, real estate, or bearer securities.

Layering

The second stage of money laundering involving wire transfers to offshore accounts or surrendering life insurance policies to hide the audit trail.

Integration

The final stage of money laundering where proceeds of crime are reconverted into clean, laundered funds via the resale of items or realization of assets.

FINTRAC

The Financial Transactions and Reports Analysis Centre of Canada, which receives reports on suspicious transactions and cash deposits of $10,000$ or more.

Terrorist Financing

The provision of funds to individuals or groups for the purpose of carrying out terrorist activity through intimidation or coercion of populations or governments.

FATF

The Financial Action Task Force, an inter-governmental body consisting of $38$ members as of February $2024$ that promotes policies to combat money laundering.

Duty of Care

A primary ethical value involving the Knowing Your Client (KYC) rule, due diligence for product analysis, and handling unsolicited orders.

Integrity

A primary ethical value requiring honest and fair conduct, prioritization of client interests, respect for client assets, and full disclosure of conflicts.

Professionalism

A value requiring that business solicitations, client orders, and personal business affairs be conducted in a manner that merits public respect.

Confidentiality

The requirement to maintain the privacy of client identities and financial circumstances, only disclosing them with permission or by order of a proper authority.

Tenants in Common

A type of account ownership where each owner holds a pro-rata share and there is no right of survivorship.

Investment Club (British Columbia)

A private mutual fund that must have no more than $50$ shareholders, issue no public debt, and pay no fees for investment advice.